WASHINGTON (Reuters) - Congressional leaders rushed to line up Republican and Democratic votes on Monday for a White House-backed deal to raise the U.S. borrowing limit and avert an unprecedented debt default.
With scars still fresh from the months-long brawl over increasing the $14.3 trillion debt ceiling, a new fight was shaping over the incendiary topic of taxes.
Global markets showed signs of relief that the United States appeared to be dodging default, but fears that the country might still lose its triple-A credit rating even with a debt deal contributed to a fizzle in a brief stocks rally.
"We avoided the possibility of a default, but now concerns are turning to a possible downgrade," said Phil Streible, senior market strategist with futures broker Lind-Waldock in Chicago.
Votes were expected later in the day in the House of Representatives and Senate on a plan to cut at least $2.4 trillion over 10 years, form a powerful new congressional committee to recommend a deficit-reduction package by late November, and raise the U.S. borrowing limit through 2013.
The non-partisan Congressional Budget Office confirmed that the debt deal would reduce budget deficits by at least $2.1 trillion over 10 years.
U.S. lawmakers split into Democratic and Republicans camps to hear appeals from their party leaders to approve the deal which emerged from feverish negotiations as the clock ticked toward a Tuesday deadline. Party leaders are hoping for sizable majorities in order to give the deal credibility.
If Congress fails to approve the deal by Tuesday, the United States will no longer be able to borrow money to pay all of its bills.
The Democratic-led Senate is expected to pass the deal, but it could face a harder path in the House of Representatives where both conservative Tea Party supporters and liberal lawmakers have expressed dissatisfaction with it.
Vice President Joe Biden, who helped negotiate the deal, traveled to Capitol Hill to urge Democrats to approve it and try to answer their concerns about potentially painful cuts to social programs.
Representative Tom Cole, a vote counter for the Republican party, said he expected the Republicans House to pass the plan with a "strong vote."
U.S. stocks rose more than 1 percent at the open on Monday, but quickly fell back in late morning trading, continuing a sag that gathered steam last week. The U.S. dollar rose modestly against the yen and the Swiss franc, a favored safe haven for nervous investors in recent weeks.
It was hard to identify winners from a bitter fight that was finally winding to a conclusion after Sunday's 11th-hour compromise agreement.
President Barack Obama had to accept deeper spending cuts than he wanted and will have to defend them to his liberal base ahead of his 2012 re-election campaign.
House of Representatives Speaker John Boehner, the top U.S. Republican, got cuts he demanded without immediate tax increases, but had to fight an image of being inflexible, a captive of his party's Tea Party wing.
Americans anxious to reduce the country's 9.2 percent jobless rate became increasingly frustrated as the debate raged on through the summer.
TAX FIGHT AWAITS
Taxes looked to be one of the next battlefields.
While the framework of the new deficit reduction plan does not call for new taxes, Democrats see the new congressional committee being formed as a vehicle for gaining more revenue through reform of the tax code.
Boehner, who is seeking to bring anti-tax Tea Party members on board, said on Sunday the framework agreement made it effectively "impossible" to use it to raise taxes.
The White House sees the issue otherwise. If tax reform does not succeed in the new committee, President Barack Obama will allow tax cuts put forward by former President George W. Bush to expire in 2013, White House officials said.
White House senior adviser David Plouffe insisted that new tax revenues were on the table.
"I think that's the case the president's going to make, that if we're going to do additional deficit reduction in the fall, it should be tax reform, closing loopholes for the wealthy and big corporations," he told NBC's "Today" show.